Billions of dollars of investment capital have flowed through the sports agency business. In recent weeks, EQT Private Equity agreed to become a strategic investor and the largest outside shareholder in United Talent Agency (UTA), and Creative Artists Agency (CAA) closed its $750 million acquisition of ICM Partners. Excel Sports Management and Wasserman Media Group have also made strategic investments, from Shamrock Capital and RedBird Capital, respectively, within the last 20 months.
Look for the trend to continue as the smart money increasingly looks at player representation businesses “as an index to broader sentiments of sports value, particularly media rights,” said Alex Michael (co-head, LionTree Growth). The thinking is that as long as the value of premium live rights continues to rise, league revenue, player salaries and agency commissions will also increase – a relatively safe bet during an uncertain economic time.
Get JWS: Investment opportunities exist within the agency business due to all firms seeking strategic capital to fuel their growth. Since Excel took Shamrock’s capital, it has expanded from three offices to seven, closed three new acquisitions, launched three new divisions and begun expanding globally.
The desire to grow is driven by increased competition. “If you count all available roster spots, 60-70% of the Big Four athletes are represented by just six agencies,” said Jason Belzer (founder, GAME, Inc.), and each is doing everything they can to keep “every and less. market share in the space.” That includes gobbling up smaller competitors.The six agencies Belzer was referring to are CAA, Excel, Wasserman, Boras Corporation, Athletes First and Octagon.
“They’re not just buying agents, they’re buying marketing agencies and agencies of record,” Belzer said. Larger firms use strong service capabilities as a recruiting tool and a means to expand their clients’ revenue.
AAC is the largest sports agency by a significant margin based on contract value under management and total potential commissions. “They now have over $10 billion in player contracts under management, which will earn them close to $500 million in commissions over the life of those deals,” Belzer said.
Investors increasingly see the agency business as a way to play the sport’s future growth without buying into individual teams or leagues. Buying into an individual team or league carries additional risks, such as the potential for poor leadership.
The escalation of media rights, which has fueled the sport’s growth for the past three decades, trickles down to player contracts. But it’s also “linked to sponsorships and franchise enterprise values,” said Emilio Collins (partner and chief business officer, Excel Sports Management). “And all of this creates opportunities for agency representation in various forms.”
The increasing number of revenue generating opportunities across the sports landscape has also attracted the attention of investors. NIL, sports betting, crypto, CBD and Web3 are among the new categories that have emerged in recent years. “This diversification really provides stability for investors, as well as tremendous benefits,” Collins said.
Like the growth achieved by larger agencies. “These agencies have turned into significant assets, with strong cash flow characteristics that they have [as a result] attracted a variety of different types of capital – from private equity to sovereign and institutional wealth. This has increased the value of land [furthered] interest in these agencies,” said Michael.
The predictable nature of guaranteed contracts seen in sports is attractive even to risk-averse investors. Belzer, who represents a number of Division I college coaches, said he has “clients on seven-, eight-year deals,” with commissions that are “like an annuity.” As long as the customer doesn’t get arrested and go to jail, that money will come in for many years.” This enables him to plan and budget accordingly. It also ensures that income will not fall dramatically during a recession.
As player contracts continue to grow, so do off-field earning opportunities. But Belzer was quick to point out that the agency’s overall non-salary revenue pales in comparison to the commissions earned on player contracts and that there are “literally thousands” of marketing agents competing for that business. He estimated that the marketing and agency of record commissions in all sports is “probably a $600 million/year business.”
Even if the total market is $1 billion, it represents a fraction of the amount raised on the contract side. Belzer said that in 2020, the top 40 agencies globally represented more than $55 billion in contracts under management, earning almost $3 billion in commissions in the process. A large part of them went to the main agencies. Belzer would know; he spent seven years making ForbesThe most valuable ranking of agencies and agents.
The agent also recalled that once-in-a-generation players who make a fortune outside of the game, like LeBron James and Tigers Woods, are the very rare exception. “The average athlete makes at most 2-3% of their career earnings in marketing,” he said. Player contracts remain the bread and butter of the sports agency business.
With simple tech growth assets out of favor, it may seem like investor demand for growth agency businesses is only going to increase. But with the pay-TV universe shrinking and media rights the main catalyst for sports growth, investors entering the space today could be buying at the top, especially given that there’s still no major recovery in valuations of the sector. “You’re still talking about low- to mid-double-digit EBITDA multiples for the best assets,” Michael said. Belzer doesn’t believe that’s the case. “We are still far from the top,” he said. “We still haven’t seen even potentially what the media industry will look like in 10 or 20 years, when none of [these rights are] on the air,” and all the major tech companies are vying for sports properties for their streaming services.